Lawyer’s view on the Jordanian PPA Khaldoun Nazer
Agenda What is the Jordanian PPA? Renewable Energy and Energy Efficiency Law Development of the Jordanian PPA PPA Main Components – Developed Markets Three Important Terms: Proper Risk Allocation Project Finance Bankability Walk through the Jordanian PPA Our view on the Jordanian PPA Not ote: this presentation on only co cover ers PPAs to be be signe ned with NEPCO CO
What is the Jordanian PPA Renewable Energy & Energy Efficiency Law 13/2012 (REEL) Regulates the development of Renewable Energy Projects in Jordan Interrelates with the General Electricity Law – provides the licensing and regulatory regime (generators, transmission and distribution) REEL - Power Purchase Agreement (PPA) is part of the Project Agreements which will be signed once the project is approved. REEL does not define a PPA nor does it stipulate any minimum requirements that must be covered in a PPA PPA under Jordanian Law is a contractual relationship that regulates the sale and purchase of electrical power. Jordanian Law recognizes “Freedom of Contract” subject at all times to Public Order and Mandatory Legal Requirements
What is the Jordanian PPA – Cont. Development of the Jordanian PPA IPP 1 Conventional Generation (Gas, Diesel, HFO) IPP 2 Conventional Generation CGECO Privatization – PPAs for existing plants – Conventional Generation Bidding process relating to Al-Kamsha Wind Farm – PPA was based on IPPs (Conventional Generation) Bidding process relating to Al-Fujeij Wind Farm – PPA was based on negotiated Kamsha PPA IPP 3 - Conventional Generation IPP 4 – Peaking Units of Existing Plants Tafila Wind Farm PPA Solar Projects PPAs – Round 1 of Direct Proposals
PPA Main Components – Developed Markets Developed Markets define the PPA as a contract to buy the electricity generated by the power plant and refers to the purchaser of the electrical power as the “Off-taker” PPA main components are: Duration (typically ranging from 15 to 25 years) Construction / Commissioning / Interconnection Sale & Purchase of Electrical Power Curtailment (by Project Developer / by Off-taker) Proper Risk Allocation (Project Developer’s Risks and Off-takers Risks) Insurance Default and remedies Environmental Attributes / Credits
Three Important Terms Development/Promotion of Power Generation Projects entails understanding and comprehending the following Three Important Terms: Proper Risk Allocation: Risk Matrix Process (Risk Identification, Assessment, and Allocation) Who is the party that will deal with the consequences of each risk? Risk to be assumed by the party that is best placed to manage such risk. Construction and operation of facility is typically developer’s risk Legal Risks (such as changes in law) and political risk is Government’s risk Insurable risk is assumed by the party that is able to insure it.
Three Important Terms – Cont. Project Finance Project’s feasibility is liked to ability to attract equity and debt Debt usually ranges from 70% to 90% Equity portion is important to ensure developer’s commitment Project Finance is defined as “long term financing with non- recourse or limited recourse where debt and equity used to finance the project are paid back from the project’s cash flow”. Project’s cash flow is the principle source of security to lenders. Lenders and developers are looking at clarity as to the project’s cash flow Risks affecting the project’s cash flow must be managed properly in order to ensure ability to attract equity and debt
Three Important Terms – Cont. Bankability: Continuously used term No set definition No list of requirements to achieve Bankability A project is considered Bankable if lenders are ready to finance the project on Project Finance basis (limited or non-recourse basis) A couple of banks in Jordan have Project Finance experience. Other banks are working on developing such practices. Active players include IFC, EIB, EBRD ….. etc
Walk through the Jordanian PPA The Jordanian PPA – Boiler Plates Long Term Agreement (20 Years after COD) NEPCO’s payment obligations are guaranteed by the Government of Jordan. Signing up to Financial Close Mainly developer to work on procuring the generation license, the environmental approvals (EIA Report) and the financing needed for the Project’s debt (PPA Direct Agreement and Guarantee Direct Agreement). Financial Close up to COD Construction of Facility and Interconnection Facilities Construction of Substation Commissioning (Independent Engineer, Tests, Sale of Power during tests, delay in commissioning and deemed commissioning)
Walk through the Jordanian PPA – Cont. COD onwards, developer to operate and maintain the facility pursuant to: Laws of Jordan; Transmission system Grid Code Generation License and other authorizations Prudent Utility Practice Operating Protocol and Access Protocol Sale and Purchase of Power Curtailment of Delivery Major Maintenance activities and maintenance in Emergency situations.
Walk through the Jordanian PPA – Cont. Metering, disputes on metering and un-availability of meters’ reading Invoicing, late payments and disputed payments Emission Reduction Credits Insurance Force Majeure (Government FM Events and Other FM Events) Prolonged FM Events (No termination for Prolonged Government FM Events) Total / Partial Loss – Restoration Change in Law Protection – (one time vs. ongoing) Default, Termination and Consequences of Termination
Walk through the Jordanian PPA – Cont. Relationship with lenders (Direct Agreements, Notices, Step-in Rights, Assignment…. etc). Dispute resolution: Expert (certain technical issues) and Arbitration per ICC Rules in London. Applicable Law is Jordanian Law Restrictions on transfer of shares in Project Company (no-rationale) Decommissioning (no-rationale on private lands)
Walk through the Jordanian PPA – Cont. Jordanian Law Issues FM Events under Jordanian Law – Jordanian Civil Code Liquidated Damages and Agreed Compensation vs. Actual Damages Ability to charge Default Interest on Late Payments PPA Not Tested: No Precedents on application of Jordanian Law on Disputes
Our view on the Jordanian PPA Fairly developed given MEMR’s/NEPCO’s experience in IPPs Covers the main components identified in Developed Markets PPAs Needs refinement in certain areas such as: Risk to lenders relating to Total Debt Outstanding if PPA is terminated for reasons other than NEPCO Event of Default (Single Buyer Model in Jordan) No termination for prolonged Government FM Events No recovery of additional costs incurred by Project Company when operating under Government FM Events Other FM Events – must distinguish between those affecting NEPCO and those affecting Project Company as those affecting NEPCO cannot be insured by Project Company. Land related risks for projects located within identified areas (Maan Development Area and Mafraq Development Area) Compensation for NEPCO EoD to provide return on Equity
Questions & Answers Thank you Khaldoun Nazer Amman – Jordan Tel: +962 6 5664750 Email: info@khalifehlaw.com khn@khalifehlaw.com
Recommend
More recommend
